Floating oil tankers here to stay

[Newsjock]

Source: Reuters

Oil product tankers idling in quiet waters of the world's oceans are unlikely to move on until well into 2010 when more refinery shutdowns could curb production and force vessels to unload.

Floating oil product volumes, comprising mostly distillates such as diesel and the heating fuel gas oil, have surged to unprecedented levels of about 100 million barrels, but refiners are still pumping out more than the world can consume.

“We see no quick solution for the floating storage issue. It might run into the third quarter of next year,” said analyst David Wech at JBC Energy, adding, “the high contango reflects the supply-demand imbalance which is most dramatic in distillates.

Banks, oil majors and trading companies with access to cheap credit are looking to reap the benefits of a market structure known as contango, where future prices are higher than the prompt, that tends to emerge in times of oversupply.

... Buying for storage at sea, dubbed “floating storage demand” by physical traders, creates the illusion of consumption in the products market, and keeps profit margins for distillates positive. This in turn sends a false signal to refiners to keep churning it out.

Read more: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/floating-oil-tankers-here-to-stay/article1385585/

[sofa king]

1. Supply hasn't outstripped demand by more than 2% in this decade.

At least, that's what I think I've seen this decade, but I can't find a citation for it. I don't think that razor-thin lifeline to five billion people will ever improve.

[FBaggins]

4. It is razor thin by nature

Supply and Demand must necessarily be the same (or quite close depending on how you define the terms).

The question is whether current production is supply limited or demand limited. Right now it's pretty clearly demand limited (which makes peak oil arguments pretty worthless at this point).

[naaman fletcher]

2. This is a terrible analysis

... Buying for storage at sea, dubbed “floating storage demand” by physical traders, creates the illusion of consumption in the products market, and keeps profit margins for distillates positive. This in turn sends a false signal to refiners to keep churning it out.


This is actually a good thing. The futures market being in Contango shows high demand in the future compared to today. Oil operations aren't quick to just set up and shut down. If we didn't have the demand today being created by the guys who are storing the oil in order to sell it in the future what would happen is that operations would close down today and then when the future arrives, price would really go through the roof because you can't just start up the shut down operations as soon as spot demand returns.

I know we all hate the energy traders, but this is an example of precisely futures markets working exactly as they should/do in a textbook.

[Skink]

3. The Somali Pirates should read up on this.

[winyanstaz]

5. Storing oil at sea is a recipe for disaster..

and they are only rigging the prices...
Time to NATIONALIZE ALL OIL COMPANIES.